How corporations can instill and cultivate entrepreneurial spirit

Energizing an enterprise-scale company with innovation isn't easy. Cash-hungry startups fuel themselves on lean operating models and growth-generating funnels like AARRR, Lean Canvas, and the Lean Startup Model. But established businesses don't have the luxury of hyper-focusing on rapid, all-or-nothing growth. They have a core business model to protect and old rigid patterns to emulate. 

Suddenly, innovation gets sidelined in favor of protecting that core model against hordes of customer-crazed competitors.

How do you break out, develop that amazing new product or service, and tread gracefully over the all-too-common scaling frictions that sink most ventures? You need to infect your venture with the same entrepreneurial spirit it had back when it successfully scaled into the sunset and built a terrific and consistent core. According to McKinsey, the top-performing companies (across all industries) divide their capital and attention between transforming and maintaining their core and developing fresh new ventures for eager markets. But simply throwing money at ventures won't create amazing new solutions. You need to think, act, and scale like a startup.

As corporations come out of the pandemic innovation slump and prepare to target new markets with incredible digital technologies and cutting-edge solutions, let's get back to the basics.

Growth never changes

Some things change. Some don't. The hunger for growth is in the latter category. No matter how big and buff your corporation gets, you still have a customer-hungry monster hiding in the closet. But that monster is scared. Excessive institutional controls, a lack of innovation, and static processes prevent you from creating amazing new ventures. So, you're stuck in this cycle of slow growth fueled by your core business practices. The monster is sustaining on scraps and scared of a lurking disruption around the corner.

Here's a question: why can't a corporation create a unicorn? Why is every hyper-successful startup funded via Series A and angel investing? You have the resources and reach to innovate. You have existing distribution networks, supply chains, customers, branding, talent, domain expertise, and the infrastructure and processes to build upon for steadying the ship during the rocky phases of growth. So, why aren't big corporations consistently spinning out amazing ventures?

However, the very corporate policies, existing processes, and stagnant mindsets are preventing you from embracing startup culture. Those processes you ever-so- carefully built to keep your core safe and secure are stifling your ability to innovate. And tearing them down isn't easy - or even necessary.

Behaving like a corporation with startup DNA

How do you accelerate and ideate new ventures? On the idea side, creating a clear path to funding for anyone who has a great idea is a good start. But it often ends with tons of hip incubation chambers that result in partially-fueled, overly expensive solutions. Instead, consider building an environment where new businesses can grow as if they were startups and consider the mechanisms on how to attract real entrepreneurs to support your team in building the innovations into revenue.

You need five things to successfully accelerate and create new ideas:

  1. The right people: You want the agility and scalability of an entrepreneur? Then you need some serial entrepreneurs on your side. Ed Essey from Microsoft Garage says you need "a hacker, a hipster, and a hustler". In other words, you need to use entrepreneurs who are able to target markets with scrap and a string. You need an entrepreneur to lead the venture building. Corporate types can participate to provide entrepreneurial talent like growth hackers, but the people leading the venture creation need to be senior entrepreneurs and these are very hard to find within the corporate environment. Eventually, you can start hiring process people, corporate employees, and developing a strong core. But your venture needs room to find and refine its business model before moving on to the increasingly stable stage of executing on the business model.
  2. The right innovation models: How do you know which ideas to scale? How do you know when to kill a great idea due to market pressures? And how do you manage innovation in a way that prevents the existing corporate structure from strangling it before it begins? The innovation model should be such that it doesn't just ensure that we deliver ideas to customers, but rather develop an actual business. Here it takes more than a few design sprints. A good comparison is to look at the Startups. A "seed" stage startup takes on average ~3 years to develop meaning it will require several millions in funding. In case the corporation doesn't want to have external funding for the venture, then they need to be prepared to carry all that cost alone together with also the further rounds (A,B,C,D) which can suck several hundreds of millions of growth funding. Failure to consider this is one of the reasons why many innovation labs fail.
  3. The right processes and strategies. This strategy should look different for everyone. We could drown you in an alphabet soup of trendy innovation models. But the truth is: you need to build one around your core values. Create your own unfair advantage. With experienced entrepreneurs you can be 10x faster and mitigate most risks involved. This combined with an innovation model that provides ventures that are capable of also getting VC funding, you have a winning recipe for most companies who don't have the bankroll to support the ventures all the way to Series A.
  4. The right mindset: Break out of those corporate policies, structures, and politics. A venture needs room to breathe. Work with serial entrepreneurs that understand the landscape, and use them to fuel your new innovation lab. You need the right governance model that connects the corporation with its resources to the startup and allows the startup to grow on its own terms.
  5. Balanced connection to the core: If your new corporate venture is not at all connected to your core business, it’s just another startup, and you are losing your opportunity to leverage your existing networks, IPR, customer relationships, industry expertise, etc. If your new venture is created inside your existing core business units, it will be slowed down by the established processes and will be prematurely killed due to not reaching the profitability levels people running a mature business expect from it so soon. The right balance is achieved, when the new venture can benefit from the connection to the core business assets but is not constrained by the misfit expectations and bureaucracy of the mature core business. This so called ambidextrous organization can be achieved for example by the core business representatives opening doors for and coaching the new venture, but not having a decision-power for shutting it down just by themselves. You can find more interesting stories about ambidextrous organizations like USA Today and Ciba Vision in this HBR article.

When we talk about an "entrepreneurial spirit," we aren't talking about intangible feelings and emotions. We're talking about growing new ideas and solutions using the processes, techniques, people, and mindset of entrepreneurs. But to do this, you need to utilize the right resources.

Getting advice from the right source

Here's one of the biggest mistakes in corporate venturing: trying to transform your corporation into an entrepreneurial company. Don't do that! The core business works as is because of its business model, not despite of it. Radical entrepreneurial spirit can do more harm than good.

Instead, bring in the entrepreneurs when building new business ventures or trying out new business models. You still need to focus on your core. But you need the spirit, brains, and processes of a lean, growth-hungry startup. Management consultancies focused on helping you improve your core business aren't the answer here. You need serial entrepreneurs with a proven track record to come in, tear down those in-the-way processes, and help you build a unicorn.

Don't act big. When you need to make changes to your core business model and innovate internally, you can bring in these massive proven consulting firms. But when you want to scale a small venture, you need more than a bunch of "processes" or "wireframes." You need to work with real entrepreneurs; people who know how to bootstrap together a rag-tag "dream team" of developers and marketers. People who understand how to implement lean models into ventures. And people that understand how to measure innovation, price new solutions, discover opportunities, and "go-to-market" with trail-blazing solutions.

Otherwise, you get stuck in the "incubation chamber" phase. In this phase, you spin off a bunch of incubators. They don't get the funding and power of a corporation. But they also aren't shielded from your existing processes and procedures that stifle growth.

So, you hire out a consulting company that has you spin-off a bunch of newer, trendier incubators or accelerators using new frameworks or business models. But it doesn't tackle the core issue. You didn't create an entrepreneurial ecosystem that has the agility, flexibility, and elasticity to compete with other lean-minded startups. 

Marketing-driven innovations that create concepts with early proof of traction often lead to a quagmire: you get stuck as you don't have the necessary resources to really grow these concepts to working businesses.We often see corporations that don't even have a plan on how to do this or consider the fundability of these "seeds" longer than the first stage. You must think the funding rounds all the way through for at least Series A level at the incubation stage.

Ready to Grow New Ideas?

At Coventures we help corporations innovate and build new growth by providing a close collaboration with senior, proven entrepreneurs who know how to create fundable ventures and are also experts of designing innovation models that actually work and create new revenue. Interested in how to build your innovation model or do you need more experienced entrepreneurs to actually scale your ideas? Check out our webinar on the topic and reach out to discuss what type of model would be suitable for you and maybe we find a way to co-venture something meaningful.